Forget Stablecoins

This article was first published in The International Economy Magazine.

Modern banking systems are inherently fragile because they assign to private institutions the contradictory tasks of simultaneously creating money and financing risky lending. Digital innovation amplifies this fragility: stablecoins introduce new layers of runnable instruments, while digitization accelerates financial panics. We argue that central bank digital currency (CBDC) offers the mechanism to sever the link between money creation and credit creation that lies at the core of the current system’s instability. In CBDC-only monetary systems, payments run on public money, private credit institutions bear explicit market discipline, and payment systems are insulated from private balance-sheet stress. CBDC is not a threat to financial innovation—it is a precondition, providing a stable foundation on which private innovation can flourish without embedding new systemic risks. The ultimate stablecoin is not issued by a private company. It is issued by the central bank for the benefit of the economy as a whole.

Read the full article HERE.

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